Citizens for Tax Justice (CTJ) has released an analysis of Cain's Tax Plan : Herman Cain's 9-9-9 Plan (Oct. 18, 2011).
Given the sketchy information available about the plan, CTJ makes a number of assumptions regarding exclusions and deductions. But the analysis provides at least some help in understanding the likely distributional impact of the Cain plan.
If presidential candidate Herman Cain’s proposed “9-9-9 tax plan” was in effect today, then the richest one percent of taxpayers would each pay $210,000 less in annual taxes on average, while the poorest 60 percent of taxpayers would each pay about $2,000 more in annual taxes on average, than they do now. Moreover, under the 9-9-9 plan, the United States government would collect about $340 billion less in revenue in 2011 alone. Ud.
Cain's plan replaces (as an intermediary step towards a national sales tax) existing federal taxes (personal income tax, payroll tax, corporate income tax, excise tax, AMT, estate tax, and one assumes, the gift tax) with a 9% personal income tax , a 9% business tax (,and a 9% national sales tax.
As CTJ notes, Cain's personal income tax would be on gross income, minus capital gains plus charitable contributions. It is not clear that there would be any other exemptions related to a minimal standard of living (represented in the income tax through a standard deduction and personal exemptions, as well as the Earned Income Tax Credit and the Child Care Credit).
As for Cain's business tax, CTJ notes that it apparently would apply to gross income minus purchases from other businesses (as is usual with a VAT), minus dividends paid to shareholders, and minus investments. It would, in other words, essentially apply to wages paid.
In other words, the nine percent “business flat tax” under Cain’s plan actually seems to be a payroll tax. Of course, such a payroll tax would affect low- and middle-income people far more than the corporate income tax it would replace. Id. Not to mention the operation of this particular business tax as an incentive, whenever possible, for businesses to fire workers and use that money for other, deductible purposes.
The CTJ estimate assumes that the national sales tax would, like most European VATs, actually be on about 55% of personal consumption rather than 100%. Clearly, the tax impact on the poorest Americans would increase if it were on a larger percentage of consumption.
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